Customer Loyalty Drives Profitability

        The study conducted by Profit Impact Market Share (PIMS) revealed that the share of market is the main driver of profitability. This “market share=profitability” principle was created around “customer is always right” philosophy which depends highly on sales and costly advertising. While the market share is seen as an important factor in profitability, it seems that customer service is underrated. The direct relationship between market share and profitability was challenged by the Harvard Business School professor, Earl Sasser and The Loyalty Effect book author, Fred Reichheld through a sampling test in service oriented organizations. The result in the study concluded that customer loyalty is more often associated with rapid growth and company profitability (Heskett, Sasser, and Schlesinger, 1997) and this is the very reason why customer service is very important in every organization.

          One of the measures of customer loyalty is customer retention. The longer the customer remains loyal, the more profit a business can reap from a single customer. The typical company gets 65% of its business from existing customers, and it costs five times more to find a new customer than to keep an existing one happy. Statistics show that on average, American businesses spend seven times more money attracting new customers than trying to keep existing ones.

     Cycle of service describes the complete end to end experience that a customer has when interacting with an organization. This is called a process. This is a pre-requisite to understanding the customers’ experience and to being a customer-centric company. An example of cycle of service in a typical organization is the order processing. The process starts when an order is placed by a customer via electronic web portal, email, or fax. The same order will be generated by printing the filled out order form. The order information will be entered to the organization’s system for invoicing. A production slip is printed and is forwarded to the production area for order fulfillment and delivery. 

        Every time the order is handled, the customer is handled and every time the order sits unattended, the customer sits unattended. Every process in a cycle is moment of truth. Customer satisfaction or dissatisfaction takes place during moments of truth—every interaction between a customer and the organization. To be customer-focused is to go over and above the requirements of each of the order processes because the moment of truth is happening every step of the way.

         In an organization, the accuracy and completeness of reports about the order create a type of service for the customer. The availability of good quality products for manufacturing and delivery form an impression. The way how the products are packaged and how these packages are delivered also create an impression.

         Do all the production slips and invoices contain accurate information? Are all the products available with no back order? Are these products in good quality and packaged according to the requirement? Are they delivered on time with no broken packages?  Is delivery service pleasant and appropriate? Are all requirements satisfied? Are emails responded quickly? Are telephone etiquettes being practiced? Are complaints addressed in a timely and proper manner?  At each and every one of these “moments of truth,” a customer has the opportunity to form a positive or negative impression of the complete “cycle of service” provided which will reflect on the entire organization. Senior leaders will be encouraged to understand the definition and importance of moment of truth.

        Customer engagement process has helped organizations discover that the average company never hears from 96% of its unhappy customers. For every complaint received, the company has 26 more customers with problems, six of whom have problems that are serious. The average customer who has had a problem with an organization tells 9 or 10 people about it. The chain of customer loyalty starts with a definition of quality. The author of this paper adopts the definition of quality from a well-known quality guru, Dr. Armand Feigenbaum. Dr. Feigenbaum said that “Quality is what the customer says it is.” It is important for the senior leadership team to consistently embrace such a definition.

        The definition of quality leads to focusing on customer service. Harvard Business Review article, “Putting the Service-Profit Chain to Work” links customer service to customer loyalty and profitability. Heskett, et al. (2008) scrutinized that business growth and bottom-line results were primarily prompted by customer loyalty. Loyalty is a by-product of customer service and value of services delivered to customers.

        Another method of keeping the customer from leaving is to provide help when it (customer) needs it. Customer complaints are addressed in a split second. The issues raised by customers are resolved at the frontline employee levels if possible and are done quickly. Avoiding statements such as “…but according to our policy…” or “…I will pass you on to another department…” is very important. There is always a better way of handling the complaint and at the same time make the customer happy. If an organization encounters irate customers, it should be handled with care. A company’s customer service representatives (CSRs) should remain silent and listen carefully to the angry customer. Let the customer feel that the company’s frontline workers understand the problem. Always act on customers concern according to what they wish. After listening attentively to the frustrations of the customer, make a follow up call to ensure that company’s dedication to service is reinforced. These actions make customers repeat purchases; hence, making them loyal to the company.